[Congressional Record Volume 143, Number 144 (Thursday, October 23, 1997)]
[Extensions of Remarks]
[Pages E2065-E2066]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




INTRODUCTION OF LEGISLATION TO HELP THE NATION'S SAFETY NET HOSPITALS: 
         CARVE OUT OF DISPROPORTIONATE SHARE HOSPITAL PAYMENTS

                                 ______
                                 

                         HON. CHARLES B. RANGEL

                              of new york

                    in the house of representatives

                      Wednesday, October 22, 1997

  Mr. RANGEL. Mr. Speaker, on behalf of myself and Mr. Stark, Mr. 
Cardin, Mr. Lewis of Georgia, and Mr. Becerra, I am today introducing 
legislation to give equitable treatment to the Nation's safetynet 
hospitals, the hospitals which serve a disproportionate share of the 
Nation's uninsured and low income.
  Our bill carves out disproportionate share hospital [DSH] payments 
from the amount we give HMO's and pays those DSH funds directly to DSH 
hospitals when managed care company patients use a DSH hospital.
  This legislation completes a process well-started in the Balanced 
Budget Act. In the just-enacted Balanced Budget Act, we carved out from 
what we pay HMO's the amount attributable to the cost of graduate 
medical education [GME] and provided that, when an HMO's patient 
actually uses a GME hospital, that hospital will be directly reimbursed 
by Medicare for its extra GME expenses. This provision corrects a 
serious problem facing our Nation's teaching and research hospitals: 
HMO's get paid as if they use these hospitals, but in many--but not 
all--cases, HMO's avoid these more expensive hospitals. The carve out 
will prevent windfalls to HMO's and permit the GME hospitals to compete 
fairly for HMO patients.
  The same logic that supported the GME carve out supports the DSH 
carve out. Though the Senate Finance and Commerce Committees' bills 
provided for both a DSH carve out

[[Page E2066]]

and a GME carve out, the DSH carve out was dropped from the final BBA. 
There is no logic to not applying the same principle to DSH payments.
  Our Nation's safetynet hospitals desperately need these extra 
payments--and HMO's which do not use DSH hospitals do not deserve the 
extra amount. For example, as data from 1995 show, the Nation's public 
hospitals in over 100 of America's largest metropolitan areas are among 
the key safetynet hospitals. These hospitals make up only about 2 
percent of all the Nation's hospitals, yet they provide more than 20 
percent of all uncompensated care and they rely on Medicare and 
Medicaid to fund more than half of that uncompensated care. in 1995, 67 
of these safetynet hospitals reported incurring $5.8 billion in 
uncompensated care costs--defined as bad debt and charity care--an 
average of over $86 million per hospital. For these institutions, bad 
debt and charity care represented 25 percent of their total gross 
charges. These safetynet hospitals have the worst total margins--that 
is, ``profits''--in the hospital industry. Overall, hospital margins 
from Medicare payments are at record highs and this fact justified the 
Medicare payment update freeze and reductions which were included in 
the Balanced Budget Act. But the Prospective Payment Assessment 
Commission estimates that in 1997 the Nation's major teaching 
hospitals, who also tend to be DSH hospitals, will have the lowest 
total margins of any hospital category: 3.9 percent--a thin and 
shrinking margin that will surely turn negative in the next economic 
downturn. The enactment of this legislation could help improve these 
margins and preserve the more than 800 hospitals who are receiving DSH 
payments.
  Providing a DSH carve out will also help these hospitals compete 
equally for managed care patients. Failing to provide a carve out 
serves as an incentive to managed care plans not to use these more 
expensive hospitals. A recent White Paper from the National Association 
of Public Hospitals and Health Systems entitled ``Preserving America's 
Safety Net Hospitals'' explains why the DSH carve out should be 
legislated: ``The current methodology for distributing Direct Graduate 
Medical Education, Indirect Medical Education, and DSH payments is 
seriously flawed in the Medicare managed care context. For Medicare 
patients enrolled in managed care, these supplemental payments are 
incorporated into the average adjusted per capita cost [AAPCC] which is 
the capitation payment made to managed care plans. The plans do not 
necessarily pass these payments along to the hospitals which incur the 
costs that justify the payments. In fact, some plans receive the 
payments and do not even contract with such hospitals. As Medicare 
increases the use of capitated risk contracting, the amount of DGME, 
IME, and DSH funds that go to teaching hospitals will diminish 
considerably unless this payment policy is changed. In essence, 
payments intended to support the costs of teaching or low income care 
are being diverted from the hospitals that provide the care to managed 
care plans that are not fulfilling this mission. For this reason, the 
GME and DSH payments must be carved out of the AAPCC rate and made 
directly to the hospitals that incur those costs.''
  I am pleased to report that the Hospital Association of New York 
State [HANYS] and the Greater New York Hospital Association [GNYHA] 
have announced their support for this bill. I hope that other hospital 
associations around the Nation will quickly join in urging passage of 
this bill.
  The carve out for graduate medical education was wisely included in 
the Balanced Budget Act. It is logical, appropriate, and important that 
we complete the work and carve out the DSH payments.

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